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Residential Care - Common Questions and Answers
Residential Care - Common Questions and Answers
After may years assisting families with residential care placement, there are questions that we regularly get asked by care recipients and their supportive family members - and we thought it would be worthwhile to share some of these important questions and answers with you.
Sometimes, residential aged care regulations, rules and policies seem to be unnecessarily complex but the decisions that you have to makr in a timely manner will affect someone close to your heart.
We hope you get value out of the information that we have collected "from the trenches".
Like to Know More?What is a Refundable Accommodation Deposit (RAD)?
The Refundable Accommodation Deposit (RAD) is a payment made towards accommodation costs when a resident enters a Commonwealth regulated aged care home. Most new residents in residential aged care will pay this accommodation fee to the aged home as they move in.
The RAD will be eventually returned to the resident or beneficiaries and should be considered as a gift from the resident. We believe resident's should pay an accomodation fee according to their financial ability to pay.
In any Commonwealth-regulated aged care home there is no "ownership" of a room that the resident will be living in.
Also the same level of clinical care and lifestyle services will be provided to each resident regardless of whether the RAD level was $350k, $650k or $950k.
The underlying concept is that the collective RAD's create a significant pool of money for the aged care provider to maintain their existing building or invest in new aged care homes for future residents.
Will the lump sum RAD be returned in full to the beneficiaries?
YES - If the accommodation payment has been made as a full lump sum RAD, then the full amount of the RAD is returned to the family beneficiaries when the person ceases residency in the aged care home. Well, it really was always your money!
Can the RAD be negotiated with the residential care provider?
YES - The published RAD is an arbitary maximum amount initially set by the aged care provider and can be negotiated.
The Commonwealth states that "everyone who moves into an aged care home negotiates a room price before moving in. Whether you are then required to pay this price will depend on your means assessment." Source: myagedcare.gov.au/understanding-aged-care-home-accommodation-costs
Many items will determine the level of the agreed RAD - the location of the suburb of the aged care home, the value of properties in close vicinity of the aged care home, the size and location of the room within the aged care home, the occupancy level of the aged care home and the prevailing overall financial economic situation (ie interest rates, cost of living pressures and increasing or decreasing values of local family homes).
The maximum RAD that an aged care home can charge, without getting prior approval from the Aged Care Pricing Authority, is $550,000. That's why so many aged care homes set the RAD at $550,000!
Can we give examples of how negotiable is the RAD?
YES - The general rule is that the higher the published RAD is - then the more that it can be negotiated and reduced. We have been able to reduce a requested RAD of $1.25 Million to $800k, or a requested RAD of $875k to $710k. However, with lower RAD's of say $350k then they may not be reduced in the same ratio.
Do all residents have to pay a RAD?
NO - A resident may not need to pay a RAD if they are deemed to be a low-means resident and the Government will pay for the accommodation payment for a "fully supported" resident or will pay a partial accommodation payment and ask the resident to pay an accommodation "contribution" based upon their calculated assets and income level.
What is the Maximum Permissible Interest Rate (MPIR)?
The Maximum Permissible Interest Rate (MPIR) is the interest rate that the Commonwealth sets to be used in the conversion of a lump sum Refundable Accommodation Deposit (RAD) to the equivalent Daily Accommodation Payment (DAP).
Does the Accommodation Fee have to be paid as a full lump sum RAD?
NO - A resident may chose to pay the negotiated accommodation payment as a "Daily Accommodation Payment (DAP)" or may decide to pay a combination of a lump sum RAD and the unpaid balance to be paid as a daily payment.
The formula to calculate the DAP from a RAD is:
- DAP = RAD x MPIR / 365
- ie. RAD $550,000 and MPIR 8.38%pa (as at 1st January 2024)
- DAP = $550,000 x 8.38% / 365 = $126.27 per day
Why would a resident chose to pay ongoing DAP rather than lump sum RAD?
All residents and their families have different situations and the decision to pay a full lump sum RAD versus ongoing daily payments (DAP) should be discussed at length by all family members and carefully considered.
Most RAD's are paid by the sale of the family home. However, there are many benefits of retaining the family home in relation to social security (pension) payments. Also the family home is still one of the best appreciating asset classes that a resident or beneficiaries can have an interest in.
The age of the resident and their health care needs will also have an impact on the expected duration in an aged care home - and the immediate selling of a large asset like the family home may not be the best decison taking this into consideration.
While there are some exeptions, it is usually not a smart idea to sell a family home if not really necessary, or to give excessive family money away if you do not have to!
Can the DAP be paid from the lump sum RAD?
YES - The resident can request that the DAP is paid from the lump sum RAD - but this will reduce the amount that is paid back to the beneficiaries when the resident is no longer in the aged care home.
Is the lump sum RAD paid to the aged care provider secure and readily available?
YES - the Commonwealth guarantees to return RAD lump sums to all residents in the event that any Commonwealth registered residential aged care provider is unable to meet its financial committments.
The RAD pool is also prudentially regulated by the Commonwealth, so that there is a level of comfort knowing that your RAD will be promptly repaid even at a time when there is an unusual number of residents leaving an individual aged care home.
Does the family home need to sold to pay the RAD?
The existing family home is usually the residents most valuable asset and many family's assume that it needs to be sold to pay for the RAD.
The family home can be effectively used to generate a financial return. This return takes the form of rental income and capital growth (which a RAD certainly does not provide).
The family home is also treated on a concessional basis for the age pension and aged care fees. For age pension purposes, if you move into care - the former home’s value will be excluded from the age pension assets test for two years (the "grace period") but any rental income is assessable under the income test. But rent is usually higher than the DAP so can be used as an offset for the DAP.
Another benefit is that the value of the home is capped at $186,331 (as at 1st January 2023) for aged care means-testing. Consider the options wisely before selling the family home, remember it is difficult to "unsell" the family home once the deed is done.
What is the Means Tested Care Fee (MTCF)?
The Means Tested Care Fee (NTCF) is levied by the Commonwealth and is collected by the aged care home based on an individual assessment (using Forms SA457 or SA485) for each resident. The MTCF will be payable by residents with the financial capacity to contribute to the cost of care.
The MTCF can range from zero to a maximum $264 per day. The MTCF is currently capped at $30,574 pa or $73,378 over a lifetime (just a few months over two years of payments).
What is a "Fully Supported" Resident?
If a resident has assets less than $55,000 and they have an income less than $30,204 pa, then that resident will be classified as fully supported by the Australian Government and they will not be asked to pay any accommodation payment (RAD or DAP).
In order to be classified as fully supported, a resident must complete an Income & Asset Assessment (Form SA485).
What is a "Partially Supported" Resident?
Residents with assets between $55,000 - $186,331 are deemed to be partially supported by the Australian Government, subject to their income level.
As a partially supported resident, the person will be required to contribute to some of the costs of their accommodation.
The resident will have the option to pay a Refundable Accommodation Contribution (RAC) or a Daily Accommodation Contribution (DAC).
The exact amount of RAC or DAC will be determined by Centrelink. To get this support the resident needs to complete an Income & Asset Statement (Form SA485).
